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Form 5500 audit requirements for large 401(k) plans
Form 5500 audit requirements for large 401(k) plans
Updated over a week ago

The Form 5500 is a government required report of plan activity and assets that must be filed for almost all 401(k) plans each year. The type of plan as well as the census data determines the type of Form 5500 that you must file as well as any attachments that may be required.

If your plan fits the definition of a “large plan filer,” an independent plan audit report must be attached to your Form 5500 filing.

Here are the answers to common questions about 5500 plan audits.

When is a Form 5500 plan audit required?

Generally, a plan audit is required when an existing plan has 100 or more participants with a balance on the first day of the plan year (typically, January 1). For new plans, the audit requirement is based on the number of participants with a balance on the last day of the plan year. This is because no participants would have a balance when a brand new plan first begins.

Are there any exceptions to the plan audit requirement?

There are two exemptions to the plan audit requirement:

  • Deferral for short plan year: If your plan year is shorter than 7 months, you may defer the audit to the following year. This does not eliminate the need for an audit; rather, the subsequent year’s audit will cover the first two calendar years of the plan.

    • For example, if you started a new 401(k) plan where the plan year ends December 31 and the initial effective date is September 1 of the same year, you will have a short plan year (September 1 through December 31). Because that short plan year is less than seven months, the first plan audit will occur the following year and cover the initial few months as well as the following year.

  • 80-120 rule: You are excluded from the audit requirement if (1) your plan filed a Form 5500-SF in the previous year without an audit and (2) your participant count did not exceed 120 at the beginning of this plan year.

    • For example, if you filed the Form 5500-SF last year with 93 participants, and this year you have 115 participants, you are eligible to file as a Form 5500-SF indefinitely until you reach 121 participants at the beginning of the plan year.

    • If you filed the Form 5500 last year with an audit and had 130 participants, and this year you have 110 participants, you must file this year’s Form 5500 with an audit. Once your participant count drops below 100, you would be eligible to file as a Form 5500-SF again and would no longer need to complete an audit.

Guideline reviews plans for these waivers and applies them as applicable. If you have received a notification from Guideline informing you of the audit requirement and feel you qualify for one of these exemptions, please contact us by emailing so we may be of assistance.

Does Guideline complete or arrange for the Form 5500 plan audit?

No, you are responsible for hiring a qualified independent public accounting firm to complete the audit. Once the audit is complete, the auditor will write an opinion and draft financial statements. This audit report must be attached to the Form 5500 filing. Failing to provide a completed audit by the Form 5500 filing deadline (July 31, or October 15 if an extension was requested) may result in substantial penalties imposed by the Department of Labor (DOL) and Internal Revenue Service (IRS).

If Guideline has determined that your plan is subject to the Form 5500 plan audit requirement, you will receive an email as well as a task on your plan dashboard. You will use this task to provide Guideline with information about your selected plan auditor.

Once this task has been completed, we will deliver an audit package to your selected auditor, which contains numerous reports that assist them in completing the audit.

How should we select a plan auditor?

It is important to perform due diligence to ensure your company chooses a qualified independent public accounting firm to complete your plan audit.

Important considerations in selecting your auditor include:

  • Experience performing employee benefit plan audits

  • Conflicts of interest

  • Capacity to meet the filing deadline

  • Pricing

How long does a plan audit take?

A typical plan audit takes approximately 6-8 weeks to complete. However, more complex audits can take up to 6 months.

We strongly urge you to engage with an auditor no later than July 1. If you do not engage an auditor by this date, there is a risk that your Form 5500 may not be filed on time (even with extension), and you may be subject to penalties by the DOL and IRS. Please note that your auditor may also charge additional fees for the audit in the event of a compressed time frame.

❓To get answers about Form 5500 filing, check out our Form 5500 FAQ.

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